Don Cruickshank, director general of telecommunications, said he would monitor in particular BT's prices to prevent cross-subsidy of the cost of the video service from telephone charges.
Oftel is due to hold talks with BT early next year on its plans for offering a range of different entertainment and information services over the telephone network.
BT is losing customers at the rate of 15,000 a month to cable television companies offering telephone services on local networks. It plans to start commercial trials of a video- on-demand service, with 25,000 customers in East Anglia next March.
Mr Cruickshank told a Financial Times conference in London: 'The cable PTOs (public telecommunications operators) are beginning to deliver choice to consumers, and I intend to continue developing a regulatory environment which encourages effective competition in telecommunications.'
He would look closely at BT's video-on-demand service to ensure it was fully consistent with UK competition policy and operated in accordance with the 'fair trading' requirement in its licence.
Richard Woollam, director general of the Cable Television Association, said: 'This is a very positive statement. We are reassured by what Oftel has said and believe that the interests of cable operators will be taken fully into account.'
Under the BT system, customers will be able to order a video for point-to-point transmission down the existing copper telephone line. A cable decoder will be needed.
BT will not be allowed, however, to launch mass broadcast services or other forms of entertainment over its network until 2001.Reuse content